This is How You Choose the Best Retirement ETF

Updated: Nov 9, 2022

The top factors to consider when choosing a fund.

Photo by Dan Dimmock on Unsplash

Index funds and ETFs

Index funds and ETFs are the best way the average investor can invest in the stock market. Most index funds will pay you a dividend just for owning them and safely give you exposure to hundreds of stocks.

Investors do not need to know how to research the stock market except. All investors must do is dollar-cost average into the fund over time. Dollar-cost averaging is consistently buying more of the fund each week or month. I have a great post about how you can start dollar-cost averaging into stocks that you can check out here!

Factors to Consider When Choosing a Fund

- The fund’s holdings

There are many funds to choose from that can give you exposure to small, mid, and large-cap stocks. You can also invest in international companies, commodities, and bonds with stock funds.

If you want to invest in the entire American stock market, an ETF like Vanguard’s total stock market fund (VTI) is good. Many funds, such as the Vanguard 500 ETF (VOO), give you exposure to the top 500 large-cap companies on the American stock market.

Bond funds like Vanguard’s total bond market ETF (BND) also give you exposure to the bond market. Bond funds are a safer choice than equities if you are nearing retirement.

- The expense ratio

Considering the fund's expense ratio is essential because the fees can eat into your profits if they are too large. The expense ratio is essentially how much the fund managers charge you to invest in the fund each year. Therefore, you want to keep this number as low as possible.

Vanguard funds have the lowest expense ratios on their index funds and ETFs. The best retirement ETF has a low expense ratio. For example, the ETF VOO has an expense ratio of just .03%, making it one of the cheapest funds. Anything above 0.50% is likely an actively managed fund. Actively managed funds may outperform passive index funds, but most do not.

Bottom line

If you have ten years or more until you plan on retiring, investing in the American stock market is an excellent choice. You should pick an index fund or ETF that you like and dollar-cost average into it over time.

The stock market can be volatile in the short term, but it has always recovered. So when the market starts to come down, investors need to hold on to their investments and continue dollar-cost averaging. When people are fearful and panic selling, many great opportunities arise for long-term investors.